JP Morgan's Canary Wharf deal is not everything the City hoped it would be

For Boris Johnson, JP Morgan's decision to locate its European headquarters at
Canary Wharf confirms London as "Average Joe's".

JP Morgan bought the Riverside South site for £237m and planned a 1.9m sq ft two-tower development costing £1.5bnPhoto: Alamy

By Graham Ruddick and Harry Wilson

7:30AM GMT 21 Dec 2010

Far from a slight at the UK capital, the Mayor of London was alluding to one of his favourite films – American comedy Dodgeball – where a team from the traditional Average Joe's gym overcomes fierce competition from futuristic, wealthy rivals.

"The key point about Dodgeball is a wonderful old-fashioned institution called Average Joe's overcomes the challenge of Globo Gym, and I've absolutely no doubt that with the kind of investment that we've seen today, London will overcome global competition," the Mayor said on Monday at a news conference.

He swapped his favourite film story during tense negotiations with JP Morgan's chief administrative officer Frank Bisignano – who emerged as a key player in JP Morgan's London property plans. Bisignano's favourite film, for the record, is Jerry Maguire, where Tom Cruise stars as a sports agent.

Getting JP Morgan to commit to a new London base has required all the negotiating parties – the Mayor, the Government, Canary Wharf Group, and the bank – to evade a series of dodgeballs over the past three years.

The saga began in 2007, when JP Morgan fully initiated a search to consolidate its London offices under one roof. With its main rivals signing up high-quality offices in Canary Wharf, JP Morgan's older buildings struggle under the weight of modern technological demands. Property sources tell tales of back office staff being sent home some days as IT systems overloaded.

The bank settled on Hammerson's St Alphage site in the City for a new 1m sq ft base for its investment banking arm. However, 15 months later, JP Morgan made its first about-turn and scrapped the plans due to local residents challenging the planning application and the bank taking over Bear Sterns.

Attention was switched to a new proposal at Canary Wharf – announced in November 2008 – envisaging one of the largest office complexes ever built in the UK. JP Morgan bought the Riverside South site for £237m and planned a 1.9m sq ft two-tower development costing £1.5bn.

However, the project soon found itself on unsteady ground as the banking industry was rocked by the financial crisis. Jamie Dimon, chief executive of JP Morgan, became increasingly frustrated about the UK Government's banker-bashing in response to the recession – especially the 50pc super-tax on bonuses – and in a phone call to Alistair Darling, then the Chancellor, late last year he is understood to have threatened to scrap the headquarters plans.

This sparked 12 months of speculation and fierce negotiations over JP Morgan's future, with the bank linked to Lehman's former headquarters at Canary Wharf or an exit from the UK in favour of investment in the flourishing East.

Mr Johnson and the coalition Government launched a charm offensive with Mr Dimon and the bank, culminating in Monday's announcement, the third in the JP Morgan saga.

The bank is to pay £495m for the 1m sq ft former Lehman building and use the tower as its European investment bank headquarters from 2012, bringing 8,500 workers to the Wharf. However, at the same time, JP Morgan has instructed CWG to continue building Riverside South to street level – a process likely to take at least 18 months – and has extended the development contract with CWG from 2013 to 2016. Following the deals, it means JP Morgan controls 20pc of the total capacity of Canary Wharf.

George Iacobescu, chief executive of CWG, said: "This is not a Canary Wharf deal. It is a UK and London plc deal. It is win-win for everybody."

However, questions still remain about JP Morgan's plans for Riverside. According to Mr Iacobescu, its "definitely going to be offices" but it remains unclear what size they will be, whether JP Morgan will occupy them, and what the future of 25 Bank Street will be if Riverside South is completed

"I don't think that JP Morgan know today exactly what their requirement will be in five years' time," said Mr Iacobescu. "They will build it, and I think they will use it. Will they move out of 25 Bank Street? I don't know today."

On Monday, JP Morgan was keen to highlight the importance of the UK to its international business, pressing into service yet again the hoary old story of how John Pierpont Morgan began his banking career in Victorian London. What the bank did not mention was that it was Mr Morgan who recognised the growing importance of New York relative to London and decided that his career was better served by working in a growing economic powerhouse than staying in the then established centre of global finance.

Today, JP Morgan faces many of the same questions, and while the investment is welcome it is somewhat short of the ringing endorsement of London both sides were seeking to portray it as. Former JP Morgan bankers point out that it is not certain the bank will build a full-blown new headquarters building, with the bank vaguely stating it would be developed for "future use".

Under the present arrangement it would seem that while London will remain one of the bank's most important global offices, its presence will not be expanded in the way many had hoped.

The deal to buy Victoria Embankment from Carlyle can also be seen as less a ringing endorsement of London than an opportunistic purchase of one of the UK's largest gold vaults and a handy source of regular income going forwards from the renting of vault space to rivals, such as Citigroup.

So, while Average Joe's may have won this round, Globo Gym still has more dodgeballs left.